Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 1, 2019 (the "Separation Date"), Nuance Communications, Inc. (NASDAQ: NUAN) (“Nuance” or the “Company”), a leading provider of conversational AI, completed the previously announced separation of its automotive technology business (the “Business” or "Cerence"), into a separate, independent publicly traded company, Cerence Inc. (NASDAQ: CRNC). This separation was effected by means of a distribution to each Nuance stockholder of record on September 17, 2019 (the “Record Date”) of one share of Cerence common stock for every eight shares of common stock, par value $0.001 per share, of Nuance, that it held on the Record Date (the entire transaction being referred to as the “Separation”). Nuance stockholders received cash in lieu of fractional shares of Cerence common stock. In addition, pursuant to the notice of redemption we issued on August 30, 2019, we also redeemed our 6.000% Senior Notes due 2024 (the "6.000% Senior Notes") on October 1, 2019.
The unaudited pro forma condensed consolidated statements of operations for fiscal years 2018, 2017, and 2016 are based upon the historical financial statements included within the Company's Current Report on Form 8-K filed June 13, 2019 (the "June 13 Form 8-K"). The unaudited pro forma condensed consolidated statement of operations for the nine months ended June 30, 2019 and the unaudited pro forma condensed consolidated balance sheet are based upon the historical financial statements included within the Company's Quarterly Report on Form 10-Q filed August 9, 2019 (The "Third Quarter Form 10-Q"). The unaudited pro forma condensed consolidated statements of operations give effect to the Separation as if the transaction had occurred on October 1, 2016. Additionally, the unaudited pro forma condensed consolidated statements of operations for the fiscal year ended September 30, 2018 and the nine months ended June 30, 2019 give effect to the cash distribution to Nuance from Cerence, and the redemption of the 6.000% Senior Notes as if the transactions had occurred on October 1, 2017. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2019 gives effect to the Separation, the cash distribution to Nuance from Cerence, and the redemption of the 6.000% Senior Notes as if the transactions had occurred on that date.
The unaudited pro forma condensed consolidated financial statements do not reflect non-recurring charges resulting from the Separation, or future transactions that are not directly attributable to the Separation, such as restructuring activities and the resulting cost reduction.
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition for results of operations that actually would have been realized had the Separation occurred on the date or for the periods presented. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company's historical financial statements and notes included in the June 13 Form 8-K and the Third Quarter Form 10-Q.
Our actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to the following factors:
• | The pro forma adjustments are estimated based on the operating structure of the Business during each of the historical periods presented, which may differ from the operating structure at the Separation Date; |
• | We did not track the assets and liabilities of the Business historically. The pro forma adjustments are based on our estimates of the assets, liabilities and employees related to the Business in each historical period presented, which may differ from the assets, liabilities and employees at the Separation Date; |
• | We are still assessing the tax impacts of the assets and liabilities that we believe to be directly attributable to the Business for the historical periods; and |
• | The Business was highly integrated with Nuance in all the historical periods, and we are still assessing the historical cost structures of the Business and the remainder of Nuance. The adjustments to the unaudited pro forma results of operations reflect our estimates of operating costs and expenses that we consider directly related to the Business for each historical period, which may differ from the actual amounts eliminated after the Separation. |
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 2019
Pro Forma Adjustments | |||||||||||||||||
As Reported | Removing the estimated assets and liabilities of Cerence (a) | Cash distribution to Nuance and the redemption of 6.000% Senior Notes (b) | Pro Forma Amounts | ||||||||||||||
(ASC 606) | |||||||||||||||||
(In thousands) | |||||||||||||||||
ASSETS | |||||||||||||||||
Current assets: | |||||||||||||||||
Cash and cash equivalents | $ | 536,377 | $ | — | $ | (160,500 | ) | $ | 375,877 | ||||||||
Marketable securities | 136,986 | — | — | 136,986 | |||||||||||||
Accounts receivable, net | 313,599 | (71,652 | ) | — | 241,947 | ||||||||||||
Prepaid expenses and other current assets | 193,795 | (18,361 | ) | — | 175,434 | ||||||||||||
Total current assets | 1,180,757 | (90,013 | ) | (160,500 | ) | 930,244 | |||||||||||
Marketable securities | 12,796 | — | — | 12,796 | |||||||||||||
Land, building and equipment, net | 138,466 | (15,194 | ) | — | 123,272 | ||||||||||||
Goodwill | 3,242,693 | (1,118,243 | ) | — | 2,124,450 | ||||||||||||
Intangible assets, net | 372,934 | (71,373 | ) | — | 301,561 | ||||||||||||
Other assets | 241,271 | (40,887 | ) | — | 200,384 | ||||||||||||
Total assets | $ | 5,188,917 | $ | (1,335,710 | ) | $ | (160,500 | ) | $ | 3,692,707 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||
Current liabilities: | |||||||||||||||||
Contingent and deferred acquisition payments | $ | 17,122 | $ | — | $ | — | $ | 17,122 | |||||||||
Accounts payable, accrued expenses and other current liabilities | 340,284 | (45,324 | ) | — | 294,960 | ||||||||||||
Deferred revenue | 310,586 | (78,194 | ) | — | 232,392 | ||||||||||||
Total current liabilities | 667,992 | (123,518 | ) | — | 544,474 | ||||||||||||
Long-term debt | 1,923,716 | — | (300,000 | ) | 1,623,716 | ||||||||||||
Deferred revenue, net of current portion | 410,897 | (277,232 | ) | — | 133,665 | ||||||||||||
Other liabilities | 143,314 | (22,776 | ) | — | 120,538 | ||||||||||||
Total liabilities | 3,145,919 | (423,526 | ) | (300,000 | ) | 2,422,393 | |||||||||||
Stockholders' equity | 2,042,998 | (912,184 | ) | 139,500 | 1,270,314 | ||||||||||||
Total liabilities and stockholders' equity | $ | 5,188,917 | $ | (1,335,710 | ) | $ | (160,500 | ) | $ | 3,692,707 |
See accompanying notes.
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended June 30, 2019
Pro Forma Adjustments | ||||||||||||
As Reported | Removing estimated income statement items (c) (d) | Pro Forma | ||||||||||
(ASC 606) | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Professional services and hosting | $ | 771,601 | $ | (93,497 | ) | $ | 678,104 | |||||
Product and licensing | 377,349 | (125,050 | ) | 252,299 | ||||||||
Maintenance and support | 203,484 | (191 | ) | 203,293 | ||||||||
Total revenues | 1,352,434 | (218,738 | ) | 1,133,696 | ||||||||
Cost of revenues: | ||||||||||||
Professional services and hosting | 471,204 | (61,560 | ) | 409,644 | ||||||||
Product and licensing | 61,897 | (1,406 | ) | 60,491 | ||||||||
Maintenance and support | 24,919 | (110 | ) | 24,809 | ||||||||
Amortization of intangible assets | 27,700 | (7,094 | ) | 20,606 | ||||||||
Total cost of revenues | 585,720 | (70,170 | ) | 515,550 | ||||||||
Gross profit | 766,714 | (148,568 | ) | 618,146 | ||||||||
Operating expenses: | ||||||||||||
Research and development | 201,774 | (61,411 | ) | 140,363 | ||||||||
Sales and marketing | 223,343 | (23,029 | ) | 200,314 | ||||||||
General and administrative | 130,892 | (2,074 | ) | 128,818 | ||||||||
Amortization of intangible assets | 50,426 | (9,397 | ) | 41,029 | ||||||||
Acquisition-related costs, net | 6,223 | (783 | ) | 5,440 | ||||||||
Restructuring and other charges, net | 60,668 | (34,189 | ) | 26,479 | ||||||||
Total operating expenses | 673,326 | (130,883 | ) | 542,443 | ||||||||
Income from operations | 93,388 | (17,685 | ) | 75,703 | ||||||||
Other income (expense): | ||||||||||||
Interest income | 9,987 | (2,408 | ) | 7,579 | ||||||||
Interest expense | (91,777 | ) | 13,500 | (78,277 | ) | |||||||
Other income, net | 2,425 | (101 | ) | 2,324 | ||||||||
Income before income taxes | 14,023 | (6,694 | ) | 7,329 | ||||||||
Provision for income taxes | 7,814 | (2,685 | ) | 5,129 | ||||||||
Net income from continuing operations | $ | 6,209 | $ | (4,009 | ) | $ | 2,200 | |||||
Net income per share - continuing operations: | ||||||||||||
Basic | $ | 0.02 | $ | 0.01 | ||||||||
Diluted | $ | 0.02 | $ | 0.01 | ||||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 285,064 | 285,064 | ||||||||||
Diluted | 288,153 | 288,153 |
See accompanying notes.
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended September 30, 2018
Pro Forma Adjustments | ||||||||||||
As Reported | Removing estimated income statement items (c) (d) | Pro Forma | ||||||||||
(ASC 605) | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Professional services and hosting | $ | 1,045,722 | $ | (105,678 | ) | $ | 940,044 | |||||
Product and licensing | 544,019 | (168,789 | ) | 375,230 | ||||||||
Maintenance and support | 252,557 | (231 | ) | 252,326 | ||||||||
Total revenues | 1,842,298 | (274,698 | ) | 1,567,600 | ||||||||
Cost of revenues: | ||||||||||||
Professional services and hosting | 678,378 | (70,014 | ) | 608,364 | ||||||||
Product and licensing | 56,799 | (1,129 | ) | 55,670 | ||||||||
Maintenance and support | 39,324 | (120 | ) | 39,204 | ||||||||
Amortization of intangible assets | 50,886 | (10,668 | ) | 40,218 | ||||||||
Total cost of revenues | 825,387 | (81,931 | ) | 743,456 | ||||||||
Gross profit | 1,016,911 | (192,767 | ) | 824,144 | ||||||||
Operating expenses: | ||||||||||||
Research and development | 278,735 | (71,482 | ) | 207,253 | ||||||||
Sales and marketing | 311,712 | (25,143 | ) | 286,569 | ||||||||
General and administrative | 225,884 | (11,392 | ) | 214,492 | ||||||||
Amortization of intangible assets | 73,997 | (8,840 | ) | 65,157 | ||||||||
Acquisition-related costs, net | 16,093 | (4,083 | ) | 12,010 | ||||||||
Restructuring and other charges, net | 57,026 | (4,151 | ) | 52,875 | ||||||||
Impairment of goodwill and other intangible assets | 170,941 | — | 170,941 | |||||||||
Total operating expenses | 1,134,388 | (125,091 | ) | 1,009,297 | ||||||||
Loss from operations | (117,477 | ) | (67,676 | ) | (185,153 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 9,327 | (3,210 | ) | 6,117 | ||||||||
Interest expense | (137,253 | ) | 18,000 | (119,253 | ) | |||||||
Other expense, net | (1,821 | ) | 54 | (1,767 | ) | |||||||
Loss before income taxes | (247,224 | ) | (52,832 | ) | (300,056 | ) | ||||||
Benefit from income taxes | (62,320 | ) | (10,680 | ) | (73,000 | ) | ||||||
Net loss from continuing operations | $ | (184,904 | ) | $ | (42,152 | ) | $ | (227,056 | ) | |||
Net loss per share - continuing operations: | ||||||||||||
Basic | $ | (0.63 | ) | $ | (0.78 | ) | ||||||
Diluted | $ | (0.63 | ) | $ | (0.78 | ) | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 291,318 | 291,318 | ||||||||||
Diluted | 291,318 | 291,318 |
See accompanying notes.
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended September 30, 2017
Pro Forma Adjustments | ||||||||||||
As Reported | Removing estimated income statement items (c) | Pro Forma | ||||||||||
(ASC 605) | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Professional services and hosting | $ | 966,566 | $ | (95,341 | ) | $ | 871,225 | |||||
Product and licensing | 493,911 | (152,519 | ) | 341,392 | ||||||||
Maintenance and support | 267,698 | (585 | ) | 267,113 | ||||||||
Total revenues | 1,728,175 | (248,445 | ) | 1,479,730 | ||||||||
Cost of revenues: | ||||||||||||
Professional services and hosting | 654,599 | (57,867 | ) | 596,732 | ||||||||
Product and licensing | 54,104 | (766 | ) | 53,338 | ||||||||
Maintenance and support | 37,243 | (98 | ) | 37,145 | ||||||||
Amortization of intangible assets | 57,892 | (10,979 | ) | 46,913 | ||||||||
Total cost of revenues | 803,838 | (69,710 | ) | 734,128 | ||||||||
Gross profit | 924,337 | (178,735 | ) | 745,602 | ||||||||
Operating expenses: | ||||||||||||
Research and development | 239,925 | (50,493 | ) | 189,432 | ||||||||
Sales and marketing | 324,370 | (24,651 | ) | 299,719 | ||||||||
General and administrative | 163,065 | (2,222 | ) | 160,843 | ||||||||
Amortization of intangible assets | 92,839 | (5,763 | ) | 87,076 | ||||||||
Acquisition-related costs, net | 27,708 | (733 | ) | 26,975 | ||||||||
Restructuring and other charges, net | 59,923 | (1,867 | ) | 58,056 | ||||||||
Total operating expenses | 907,830 | (85,729 | ) | 822,101 | ||||||||
Income (loss) from operations | 16,507 | (93,006 | ) | (76,499 | ) | |||||||
Other income (expense): | ||||||||||||
Interest income | 6,922 | — | 6,922 | |||||||||
Interest expense | (156,889 | ) | — | (156,889 | ) | |||||||
Other expense, net | (21,210 | ) | 483 | (20,727 | ) | |||||||
Loss before income taxes | (154,670 | ) | (92,523 | ) | (247,193 | ) | ||||||
Provision for income taxes | 23,671 | (19,096 | ) | 4,575 | ||||||||
Net loss from continuing operations | $ | (178,341 | ) | $ | (73,427 | ) | $ | (251,768 | ) | |||
Net loss per share - continuing operations: | ||||||||||||
Basic | $ | (0.62 | ) | $ | (0.87 | ) | ||||||
Diluted | $ | (0.62 | ) | $ | (0.87 | ) | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 289,348 | 289,348 | ||||||||||
Diluted | 289,348 | 289,348 |
See accompanying notes.
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended September 30, 2016
Pro Forma Adjustments | ||||||||||||
As Reported | Removing estimated income statement items (c) | Pro Forma | ||||||||||
(ASC 605) | ||||||||||||
(In thousands, except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Professional services and hosting | $ | 949,630 | $ | (79,765 | ) | $ | 869,865 | |||||
Product and licensing | 502,113 | (129,516 | ) | 372,597 | ||||||||
Maintenance and support | 268,584 | (1,191 | ) | 267,393 | ||||||||
Total revenues | 1,720,327 | (210,472 | ) | 1,509,855 | ||||||||
Cost of revenues: | ||||||||||||
Professional services and hosting | 621,060 | (49,434 | ) | 571,626 | ||||||||
Product and licensing | 61,584 | (737 | ) | 60,847 | ||||||||
Maintenance and support | 37,993 | (84 | ) | 37,909 | ||||||||
Amortization of intangible assets | 54,259 | (12,275 | ) | 41,984 | ||||||||
Total cost of revenues | 774,896 | (62,530 | ) | 712,366 | ||||||||
Gross profit | 945,431 | (147,942 | ) | 797,489 | ||||||||
Operating expenses: | ||||||||||||
Research and development | 246,826 | (46,570 | ) | 200,256 | ||||||||
Sales and marketing | 319,571 | (22,482 | ) | 297,089 | ||||||||
General and administrative | 164,335 | (2,062 | ) | 162,273 | ||||||||
Amortization of intangible assets | 85,523 | (6,329 | ) | 79,194 | ||||||||
Acquisition-related costs, net | 16,823 | (20 | ) | 16,803 | ||||||||
Restructuring and other charges, net | 24,205 | (1,907 | ) | 22,298 | ||||||||
Total operating expenses | 857,283 | (79,370 | ) | 777,913 | ||||||||
Income from operations | 88,148 | (68,572 | ) | 19,576 | ||||||||
Other income (expense): | ||||||||||||
Interest income | 4,438 | — | 4,438 | |||||||||
Interest expense | (132,732 | ) | — | (132,732 | ) | |||||||
Other expense, net | (8,327 | ) | 535 | (7,792 | ) | |||||||
Loss before income taxes | (48,473 | ) | (68,037 | ) | (116,510 | ) | ||||||
Provision for income taxes | 10,230 | (4,249 | ) | 5,981 | ||||||||
Net loss from continuing operations | $ | (58,703 | ) | $ | (63,788 | ) | $ | (122,491 | ) | |||
Net loss per share - continuing operations: | ||||||||||||
Basic | $ | (0.20 | ) | $ | (0.42 | ) | ||||||
Diluted | $ | (0.20 | ) | $ | (0.42 | ) | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 292,129 | 292,129 | ||||||||||
Diluted | 292,129 | 292,129 |
See accompanying notes.
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Exhibit 99.1
NUANCE COMMUNICATIONS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma condensed consolidated statements of operations for fiscal years 2018, 2017, and 2016 are based upon the historical financial statements included within the Company's Current Report on Form 8-K filed June 13, 2019 (the "June 13 Form 8-K"). The unaudited pro forma condensed consolidated statement of operations for the nine months ended June 30, 2019 and the unaudited pro forma condensed consolidated balance sheet are based upon the historical financial statements included within the Company's Quarterly Report on Form 10-Q filed August 9, 2019 (The "Third Quarter Form 10-Q"). The unaudited pro forma condensed consolidated statements of operations give effect to the Separation as if the transaction had occurred on October 1, 2016. Additionally, the unaudited pro forma condensed consolidated statements of operations for the fiscal year ended September 30, 2018 and the nine months ended June 30, 2019 give effect to the cash distribution to Nuance from Cerence, and the redemption of the 6.000% Senior Notes as if the transactions had occurred on October 1, 2017. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2019 gives effect to the Separation, the cash distribution to Nuance from Cerence, and the redemption of the 6.000% Senior Notes as if the transactions had occurred on that date.
The unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and, in the opinion of management, reflect all necessary adjustments that are: (i) directly attributable to the Separation; (ii) factually supportable; and (iii) with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on the results of the Company.
Note 2. Pro Forma Adjustments
Adjustments to the pro forma condensed consolidated balance sheet:
(a) Removes the estimated assets and liabilities of Cerence from the condensed consolidated balance sheet as of June 30, 2019.
(b) Reflects the redemption of all of the remaining $300.0 million aggregate principal amount of the 6.000% Senior Notes at a redemption price equal to $313.5 million, which was funded by the cash distribution from Cerence of $153.0 million and cash from the balance sheet of $160.5 million.
Adjustments to the pro forma condensed consolidated statements of operations:
(c) The pro forma adjustments for each of fiscal years 2018, 2017, and 2016 and nine months ended June 30, 2019 reflect the removal of the estimated revenues, costs and direct expenses of the Business, and the related tax effects of these adjustments.
(d) | The pro forma adjustments for the fiscal year ended September 30, 2018 and the nine months ended June 30, 2019 also reflect the reduction of interest expense and interest income had we redeemed the 6.000% Senior Notes on October 1, 2017. The reduction in interest expenses was estimated based upon the then remaining $300.0 million aggregate principal amount and the stated yield of the 6.000% Senior Notes; the reduction in interest income was estimated based upon the $160.5 million reduction in Nuance's cash on its the balance sheet, as described in Note (b), and an estimated yield of 2% per annum. |
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